Tabell’s Market Letter – March 02, 1979

I TABELL'S MARKET LETTER 909 STArE RO…. D. PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW VORK STOCK E)(CliANGE. INC MEMBER AMERICAN STOCK eXCHANGe March 2, 1979 -' After having its !E'1'in. terms or.'the -Dow), the market appeared, during mid-February, to be moving laterally in preparation for a new at- tempt on the January peaks. Instead, the past few trading days saw another, somewhat vicious, leg down, the most conspicious manifestation of the decline being a 14-point drop on Tuesday, which brought the DJIA to a closing level of 807. As has often been the case with other re- cent market moves, this one, for the time being at least, seems to have run out of steam rath- er than developing additional momentum or a sharp reversal, typical follow-up characteristics of such declines until a couple of years ago. It now becomes necessary to assess the degree to which the present downswing has altered the immediate outlook. Our own view, certainly not unfamiliar to readers of this letter, has been that the triple- bottom formation of October-December 1978 is not without a substantial degree of market signi- ficance. We find ourselves part of what is probably a minority, holding the belief that this low will be sustainable for the time being. Over the past couple of months, the market has done little decisive either to prove or disprove our assumption. Quite obviously, this week's drop, bringing the Dow to within less than 3 of its mid-November low, raises serious questions as to whether or not this low may be violated. It also raises serious questions regarding the year-end rally which, until late January ,had proceeded smoothly but which now finds itself largely retraced, or indeed eradicated, depending on which indicators one happens to be looking at. We enumerated in December some of the con- clusions drawn from a study of 81 past year-end rallies. One such conclusion was the fact that a year-end advance in excess of 10 percent, without noticeable interruption, often presaged a ,better market. This lc)w'being- 9 almost, but not quite, made it, the percentage rise from We also- 8uggesteii or5etter 'prIces into was often a bullish harbinger. March has now arrived and, without a sharp reversal over the short term, it now appears unlikely that such persistence will materialize. The question which now presents itself, it seems to us, is how broad and, thus how dam- aging, has been the decline. As we noted above, the Dow on Tuesday was less than 3 above its fourth-quarter-,197.8 ,low-.,..Mnder. ,sUjh. conditions., a fair number of the Dow s year. Such, however, was not the case. At the individual lows of the week ended Wednesday, only 6 of the 30 components had moved below their late-1978 lows, and the average individual Dow stock stood 6.7 above that low. A group of 15 basic-industry issues, used in this letter as an average in the past, were collectively 12.7 above their fourth quarter low, and only 1 of the 15 had moved to new low territory. The most surprising absence of technical damage was on the American Stock Exchange where one would expect high volatility to have caused large numbers of sharp breaks. We ex- amined the action of 15 volume leaders on the junior exchange, and they stood last week, on average, 32 above late-1978 .lows, with only 2 of the 15 having penetrated those lows. Where, then, has the market damage been done The rather clear answer is that, to date, it has centered around the classic growth stocks. We maintain our own average of 12 of these issues. Six had, as of last week, moved below their lows of 1978 by amounts ranging up to 11 and, with the single exception of IBM, up 16 from its fourth-quarter low under the impetus of a stock split, all were hovering around their prior bottom figures. By and large, market weak- ness,so far seems tOTbe confined to this segment oLthelist. ' – .-c, We are not entirely sure how this particular phenomenon should be interpreted. It appears to suggest a renewed outbreak of bearishness on the part of institutions who, by and large, are the holders of these issues. A similar lack of interest proved to be ill-advised during most of 1977-1978, when large numbers of smaller-capitalization stocks moved sharply ahead in the face of desultory performance by growth stocks. We are not at all sure that the present instance is not a short-term example of the same kind of thing. The stock market, of course, is, like any other body, subject to contagion, and it is certainly possible that a malaise developing in one important segment of the market will spread to the wider body of stocks as a whole. Based on the evidence to date, however, it has not done so. Dow-Jones Industrials (1200 p.m.) 815.49 S&P Composite (1200 p.m.) 96.96 ANTHONY W. TAB ELL DELAFIELD, HARVEY, TAB ELL Cumulative Index 815.84 AWTrak No stclement or expreUIlm of opInion or ony other motter herem contolned IS, or IS 10 be deemed 10 be, dlreclly or ind,rectly, on offer or the sohcllotlon of on offer to buy or sell any security referred to or mentioned The molter 15 presented merely for the convel'lenCE of the subSCriber While we belIeve the sOlJrces of our mformo tlon to be rellOble, we In no way represent or guarantee the accuracy thereof nor of the statements mude herein Any octlon to be token by the subscrIber should be based an hiS own mvesr,gattan and 'nformallon Janney Montgomery Searl, Inc, as a corporotron, and rlS offrcers 0' employees, may now have, or may later take, posrons or trades rn reSpect to any securItIes mentIoned m thIS or any future Issue, o'ld such posllion may be dIfferent from ony vIews now or hereafter exp'essed In thIS or any other Issue Janney Montgomery Scott, Inc, whIch IS registered WIth the SEC as on Investment adVISor, may gIVe adVICe to I/S Investment adVISOry ond other Clnlomers Independently of any statements mode III thIS or In any other ISsue Further Informo,on on any security mentioned herein IS available on request